S.Korea's tech special IPOs face criticism on poor earnings of ventures

Around 200 South Korean ventures have debuted on the country’s secondary Kosdaq market since 2005 when Korea Exchange introduced a technology special listing program. 

But many ventures that went public thanks to their high growth potential and technologies rather than profits have in recent years disappointed investors with poor earnings.   

Between 2020 and 2022, a total of 95 ventures were listed on the junior bourse through the special program. But 89 of these achieved only 45.3% of their target revenue on average over the three years; while some 11 firms posted less than 10% of their target last year, The Korea Economic Daily found on Monday.

ACCUMULATED LOSSES FOR YEARS

Prestige Biologics Co., a local contract manufacturing organization for biosimilars, debuted on the Kosdaq market in March 2021 with a market cap of 530 billion won ($402.7 million). The company forecast its revenue to exceed 130 billion won and 300 billion won in 2022 and 2025, respectively; but instead posted only 16 million won in revenue with 36.6 billion won in operating losses for last year.

The company would be subject to delisting with such poor earnings if it weren’t listed via the special program. The technology exception rule allows the ventures to remain listed for at least five years.

Jeju Beer Company, which went public with a market cap of 180 billion won in May 2021, posted annual operating losses between 2020 and 2022. It logged 11.6 billion won in losses last year, a 60% on-year increase in losses.

Vaxcell Bio Therapeutics Co. and Neoimmune Tech Inc., which had IPOs in 2020 and 2021, respectively, have both posted no revenue over three straight years.

Cellivery Therapeutics Inc., a new drug developer listed in 2018, posted a net loss of 75.1 billion won last year. As its external auditor had questioned the company's financial stability and refused to include its opinions in the audit report, Korea Exchange has halted trading on the shares since March 23 of this year.

IPO MANAGERS' LIABILITY

Some stock exchanges overseas are even more open to growing ventures with less stringent financial and liquidity requirements than the Kosdaq listings via technology exceptions. Among such global exchanges are the Nasdaq’s Global Market and Capital Market, London Stock Exchange’s AIM and Singapore’s Catalist.

The major difference is that Korea lacks the legal basis to define the scope of the IPO managers’ liability, compared with the global markets. Despite the low threshold for listings, the overseas markets charge brokerages, or lead managers of the IPOs, with great responsibility.  

Under US regulations, brokerage firms can be held civilly liable for misrepresentations in Securities and Exchange Commission (SEC) filings. They may face sanctions from authorities, including penalties and fines. The rules also require Nasdaq-listed companies to achieve certain levels of performance, market cap and equity to remain on the market after listing.

Write to Ye-Jin Jun and Seok-Cheol Choi at dolsoi@hankyung.com

Jihyun Kim edited this article.